Cash Displacement: What South Africa Should Consider

As a first thought, one should probably consider what cash displacement is and how it is defined within the global and South African context? Cash displacement is limiting the use of- and the reliance on physical cash in the economy by providing accessible, easy, secure and seamless electronic products and channels to facilitate the movement of funds. In the South African context, physically handling, paying for goods and the acceptance of cash by a merchant (formal or informal) comes with a cost and security risk to the individual, merchant and the Cash-in-transit operators. Another consideration for moving away from physical cash is reducing the actual cost to the economy of producing the coins and notes.

An article by tech central in 2022, named “A third of South Africans are not yet ready to ditch cash” stated that the results of a study done by Discovery Bank and Boston Consulting Group showed that 1 third of bank clients are not ready to go cashless. Cash is still king in South Africa. This is evident from a Pepkor report stating that 90% of retail sales are still made with physical cash.

What hinders SA?

The problem of the “UNBANKED”: Considering that financial inclusion is one of the goals of SARB’s Vision 2025, PayShap is a great initiative towards this. However, at this stage only people with bank accounts with one of the participating banks can transact. This excludes the unbanked population, who will have to continue to rely on physical cash. To solve this, allowing MNOs and Fintechs to participate in PayShap will result in greater inclusion. Any person with a mobile number can register for a PayShap id with their chosen provider.

The PayShap id could be something like 0891234@mno.This will allow unbanked people to transact on their mobile phones without having a bank account. PayShap can then be used to do transfers, pay for goods and services from and to/from/between banks, MNOs and FinTechs. This should expand the reach and adoption of PayShap, and ultimately increase financial inclusion of the unbanked in the economy.

In recent developments it was announced that MTNs Mobile Money (MoMo) platform will be the first non-bank to offer PayShap through a partnership with Investec and Electrum. We expect to see more of these initiatives soon.

Cash displacement education: Another area to consider improvement in is in the education around the use of digital “cash” instead of the reliance on physical cash and the availability of digital channels in rural areas. Many people, especially in rural areas, want to have the physical cash in their wallet and use it when paying for something. For them, if they can’t see it, it does not exist. To solve this, many educational initiatives could be established around the digital world of cash, ways of payment, cost, fees and various concepts around replacing physical cash with digital.

Digital footprint evasion/getting past the anonymity of cash: There are major industries in South Africa that purely operate on a cash basis. In these industries, consumers are forced to pay for services with cash, due to the operators not wanting a digital footprint, thereby evading tax obligations. If a digital footprint exists, then the authorities will be able to see the industry participants’ revenue and question their tax returns.

There is no easy or apparent fix for this, but education programs and incentives for these industries and organisation owners to go digital might persuade them to move away from cash. What could also help is to solve the major socio-economic challenges South Africa faces, creating an environment where everyone is willing to pay their dues in terms of taxes.

Cash security concerns: Cash has its own security issues such as an individual being robbed, but so does digital. Special attention must be given to the protection of personal information and protecting payment platforms from cyber-attacks and putting measures in place to protect platform integrity.

Payment platform resilience and robustness: Any economy, and even more so the South African economy, cannot afford the impact that a total payment platform outage can have. Special consideration needs to be given to ensure that platforms are resilient to network, hardware and system outages so that the platform continues to operate in the event of outages. There should be no impact to the consumer or merchant. The necessary load-balancing and redundancy infrastructure should be in place and the platform should be robust and flexible to allow for new environments of the platform to be spun up easily.

Cash-less transactions must be seamless and easy: Making a payment or sending money to someone should be as convenient and simple as possible. At this stage (and in the case of the South African market), this is true when you use a card or cash. This is not true however from an EFT Credit payment perspective. There are too many options and channels available from the banks. For example, the options when you want to make a payment using your banks’ mobile banking apps are: Pay a beneficiary, pay with PayShap, make an instant payment, make a once-off payment and pay to e-Wallet to name a few. The other issue is interoperability between these channels: One cannot for instance use a non-bank e-Wallet and make a payment to let’s say another e-Wallet provider or to a PayShap alias.

Cost of cash-less transactions: The cost of cash is perceived to be cheap. Whatever digital products are introduced must at least enter the market at the same price-point as Cash. Transacting must be as cheap and affordable as possible, which will aid in the adoption of a particular digital platform.

Conclusion

The Unbanked consumer might be left behind when one considers South Africa’s socio-economic challenges, and it is important that this segment of the economy is not left behind. Special initiatives and considerations need to be made to provide this segment with innovative solutions to allow them to transact digitally. The alternative is the continuation of cash by this segment.